TRADE INTEGRATION UNDER ASYMMETRY OF COUNTRIES

Abstract

The article provides a review of research on the effect of economy size asymmetries on international trade integration. Size of economy influences economic and political stimuli and effects of trade integration for small and large economies. Positive effects of trade integration for small countries include elimination of price distortions, more equal conditions for businesses, wider range of products available, economic openness. Factors restraining integration include trade with distant countries, dependence of government revenue on foreign trade,  trade diversion effect, rent relations, technical barriers for market entry, increasing economic volatility, political dependence, and weaker negotiation power. Large countries have less economic stimuli for trade integration, but obtain political benefits and increase their big business power. Also larger countries can face the risks of home market effect erosion and separatism. Therefore it also affects the composition of trade blocs’ member-states. Size of economy is a factor of costs and efficiency of negotiations within regional and global trade integration. Incompleteness of integration provides advantages for large economies, which benefit from the economies of scale. These effects are extrapolated to Ukraine to assess its prospects for participation in integration processes. Considering economic stimuli it is more beneficial for Ukraine to integrate with large countries. But considering political influence and negotiation power integration with the economies of similar or smaller size is preferable. The risks of decreasing government revenues are smaller than before, but the risks of informal or technical barriers and import substitution disinvestments remain.